An active investment managers lockdown tool kit

by John Middleton, Portfolio Manager at Mint Asset Management

Yes, we have all discovered that it is vital to be aware of when your microphone is muted and your camera is on in video conferences, but we also added a few more tools to the tool kit that are likely to improve outcomes going forward.

As a New Zealand-based fund manager running trans-Tasman portfolios, Covid did create a number of challenges initially. Leaving aside market volatility and liquidity, the lack of direct contact with companies, management, and the investment team itself forced us to go about the job very differently. For a people and relationship-based industry, being no longer able to stare into the whites of people’s eyes, watch mannerisms as closely, or kick tyres while walking around facilities, was a major disadvantage, so we needed to adapt.

I believe that the New Zealand investment community was a net beneficiary from the early stages of the pandemic. Before Covid, we all listened to results calls with companies, and a few even used webcasts, but after the initial public presentation and discussion of results, it could be hard to follow up on areas of interest in a time-sensitive manner; as companies embarked on marketing campaigns which left them out of contact for a month post results. Furthermore, a lot of the post-results meetings were face-to-face and small group meetings at various brokers’ offices which could be hard to attend- especially when held in Australia.

Covid changed all that, with numerous post results zoom and teams meetings suddenly available to all and sundry. This gave us the ability to follow up with companies several times if necessary to make sure we fully understood the key issues and what the company was thinking about the future. Yes, you still had to ask the right question to get the answer you were after, but the number of opportunities to do this increased.

Working from home during reporting season had its benefits as well. Back-to-back zoom calls for 3 weeks every 6 months, despite being a challenge for concentration, meant that we were able to get basic information about a much wider range of companies at our desks, rather than having to go from physical meeting to physical meeting, regularly in different cities. It also had a positive effect on our commitment as a company to reducing our CO2 levels, as we work towards our Toitu certification.

Regular and impromptu zoom meetings meant that often, we were able to act on new information and ideas faster than in the past. In addition to regular use of internal messaging systems meant that all the team could be kept abridged of the important features of results and trading in real-time, when normally we would be out and about attending meetings in person.

However, as the novelty of video conferences abated, it soon became clear that most companies were less forthcoming than usual in group meetings. Furthermore, all-important investor days and site visits which gave us the opportunity to talk to a wider range of employees were on hold.

Thankfully, our longstanding relationships with companies' management teams meant that it was easy to pick up the phone and talk directly to senior executives and we made a point of making more regular contact to talk through current challenges and opportunities that the company was facing. Furthermore, our policy to vote on all AGM meetings also gave us an extra opportunity to talk to directors about the business from a different perspective, particularly when we had reason to vote against certain decisions (on average we vote against companies c5% of the time).

The lack of investor days and the ability to talk to middle management with direct experience of current risks and opportunities was a loss, as they are often more forthcoming than senior management. One way to square the circle was to increase the time spent talking to industry peers and competitors. We all have a wide range of friends and acquaintances many of whom can be useful in this endeavor, but we are increasingly using the likes of LinkedIn to try to make contact with other parties with the direct industry experience we were lacking. We have also participated in calls set up by brokers to talk to “specialist” individuals who used to work at companies of interest or are customers/competitors, to double-check what we are being told and importantly, not told by management.

However, where Covid did get in the way of our investment process, we chose to risk adjust our portfolio positioning for gaps in our knowledge. This was less of an issue for our investments in New Zealand where it has been basically business as usual. But, we acknowledge the reality that we were in an information deficit to some extent while investing in Australian equities, without the ability to travel, which meant that our risk weighting for these investments increased, making it much harder to add new Australian stocks to the portfolios during Covid.

The Covid era has been a challenging time for everyone. While we are hopefully through the peak of its impact on society, it is likely to remain around for some time. It has changed fundamental parts of everyday life and unfortunately is likely to have lasting economic consequences. In many ways, the investment community has fared better than most during this difficult period. But, as life starts to become more “normal”, we will look to maintain some of the flexibility that Covid has afforded and incorporate new technologies into our investment process.

Video conferences will remain a more economic and efficient way of finding out basic facts about less known companies and industries, even if we still prefer face-to-face meetings with company management before investing. We will continue to use independent third parties as a way of reality checking company information and messaging systems to stay better in touch and react faster to news flow during the busy times of the year. 

Overall, I have taken fond memories, some scars, and greater working flexibility from the Covid era, but it is nice to be back in the office. It was an interesting time trying to juggle work, home-schooling, and family life all while working from home. The good news is that from lockdown 2.0 I was able to work from the kitchen table, as we had ripped out the old kitchen 2 weeks before lockdown 1.0 and I have a newfound appreciation of an indoor sink and oven! The bad news is the kids still have not learnt to knock before they come into the study when I am on video conferences…but at least they are no longer just wearing boxers!

Disclaimer: John Middleton is a Portfolio Manager at Mint Asset Management. The above article is intended to provide information and does not purport to give investment advice.
Mint Asset Management is the issuer of the Mint Asset Management Funds. Download a copy of the product disclosure statement here.